By Matt Hougan, Bitwise Chief Investment Officer; Ryan Rasmussen, Bitwise Head of Research
Tokenization—the idea of moving stocks, bonds, and other real-world assets to blockchains instead of traditional networks—is catching on.
Here’s what happened in the past month:
1. Robinhood and Kraken debuted tokenized stock trading. Robinhood’s system is based on Ethereum’s Layer 2 network Arbitrum, while Kraken’s xStocks system is based on Solana. While both systems are currently limited to non-U.S. investors, Coinbase has filed documents with the U.S. Securities and Exchange Commission (SEC) to allow tokenized stock trading in the U.S., calling it “a major priority.”
2. Financial institutions invested $135 million in “Canton Network,” a new Layer 1 blockchain project for stock and bond trading. The round was led by market maker giant DRW Capital and bond trading market Tradeweb Markets, with participation from Citadel, DTCC, and Goldman Sachs.
3. Paul Atkins, chairman of the U.S. Securities and Exchange Commission, called tokenization a major "innovation," adding that the SEC "should focus on how to advance tokenization in the market" and that the days of regulation through law enforcement "are over."
But that's not all.
Mercado Bitcoin, one of Latin America's largest cryptocurrency exchanges, announced plans to tokenize $200 million in real-world assets on the XRP ledger; Galaxy Digital said tokenization could threaten the New York Stock Exchange's revenue; the total amount of tokenization on the real-world asset chain hit a record high.
Clearly, something is happening here. But when will it affect the prices of Ethereum, Solana, XRP, Chainlink, and related assets?
The Prospects for Tokenization
I have always held two views on tokenization.
On the one hand, it feels inevitable. Stockstrading only on weekdays from 9:30am to 4pm is absurd. Imagine if your email was closed at 4pm every Friday and reopened at 9:30am on Monday.
Not to mention how slow settlement is. Remember the headlines last year when the stock market switched from T+2 settlement to T+1 settlement?
In what other industry can we celebrate operating at 1934 speeds?
While it feels inevitable, I often feel like we are getting there too soon.Market structures change slowly.Just ask anyone who has lived through the transition from floor-based stock trading to electronic trading.
But with a series of recent developments, I’m beginning to think that the tokenization narrative may soon begin to impact the prices of related investments.
Why the price impact may start now
The main reason is that the market for tokenization is huge.
Larry Fink, CEO of BlackRock and arguably the most important person in asset management, wrote in his annual shareholder letter this year: “Every stock, every bond, every fund — every asset — can be tokenized.”
Let’s break it down.
The stock market is $117 trillion, and the bond market is $140 trillion. That means the tokenization war is worth $257 trillion — and that’s not even counting the more esoteric assets.
For context, there has been a lot of interest in the stablecoin market lately, with many (including U.S. Treasury Secretary Scott Bessant) suggesting that the stablecoin market could grow from about $250 billion to $2 trillion by 2030.
$2 trillion is a lot of money, and investing in stablecoin growth does present opportunities. But $2 trillion is a drop in the bucket compared to tokenization, and not even 1% of Larry Fink’s tokenization dream.
I still think it will be more than a decade before most stock and bond trading happens on-chain.But with large financial companies like Robinhood and Tradeweb now gearing up for this transition, I’m starting to wonder: Can tokenization achieve 1-5% penetration in a few years? Could a dozen large pilots get us to that level of market penetration? It seems possible, and it would translate into trillions of dollars in value… more than any other crypto application or asset, including Bitcoin.
The tokenization narrative is only going to accelerate from here—if Robinhood is launching tokenized trading, you can bet Schwab and others are actively working on it. I expect more announcements this fall.
How to Invest in the Tokenization Rise
The cleanest way to invest in the tokenization rise is to buy a basket of the top layer 1 blockchains and infrastructure: Ethereum, Solana, XRP, Chainlink, etc.
One could argue for concentrated investing—especially given that Ethereum is currently the leader in tokenization and well-positioned to win market share—but that seems overly specific to me. Just look at the announcements above: many different players are rushing to get ahead of the curve. It would be a shame to predict the tokenization trend too early and bet on the wrong stocks.
One can also supplement this core blockchain investment with a portfolio of stocks that are poised to benefit from tokenization, including Robinhood, Coinbase, Circle, and others.
If Larry Fink’s prediction is correct, the tokenization market could grow more than 4,000x in the next few years. Not many markets can do that.
Catherine
Anais
Kikyo
Weatherly